India's Climate Finance Strategy - ECONOMY
NEWS: India is actively revising
its climate finance approach in response to evolving global dynamics,
particularly following the United States' withdrawal from the Paris Agreement
in January 2025.
WHAT’S IN THE NEWS?
US Withdrawal & Impact on
Climate Finance
- The United States' exit from the Paris
Agreement has created a significant gap in global climate finance.
- The US had pledged substantial contributions to the
USD 300 billion annual climate finance goal and was a key
contributor to the Loss and Damage Fund, which supports countries
that are severely affected by climate change.
- With the US withdrawal, other developed
nations, particularly the European Union, face increased pressure
to meet their own financial commitments to global climate efforts.
India's Climate Finance
Landscape
- India's climate initiatives have primarily
been funded through domestic resources, but there has been some
support from international climate funds.
- As of February 2024, India has received USD
1.16 billion in international climate finance, distributed across:
- Green
Climate Fund (GCF): USD 803.9 million
- Global
Environment Facility (GEF): USD 346.52 million
- Adaptation
Fund: USD 16.86 million
- Despite these contributions, the funding from
international sources remains insufficient relative to India’s
urgent climate action needs.
India's Domestic Financial
Commitments
- India has made significant domestic investments
in climate adaptation and mitigation measures.
- In the 2021-22 period, India allocated 5.6%
of its GDP towards climate adaptation efforts, which amounted
to approximately Rs 13.35 lakh crore.
- According to the Economic Survey 2024-25,
India will need an estimated Rs 56.68 lakh crore (around USD 700
billion) by 2030 to meet its climate adaptation goals.
Strategic Financial Instruments
for Climate Finance
- India is exploring a range of financial
instruments to bolster its climate finance efforts:
- Sovereign
Green Bonds: The Reserve Bank of India issued Rs 1,697.40
crore worth of 10-year Sovereign Green Bonds in the first half
of 2024-25 to fund green infrastructure projects.
- Blended
Finance Models: India is leveraging concessional financing to
attract private sector investments, amplifying the impact of public
funds.
- Climate
Finance Taxonomy: The government is developing a taxonomy to standardize
and enhance the transparency of climate-related financial flows,
ensuring more effective tracking and allocation of resources.
Loss and Damage Concept
- The term “Loss and Damage” refers to the
consequences of climate change that are beyond the capacity of
people to adapt to.
- This includes both immediate climate disasters
(e.g., floods, hurricanes) and slow-onset events like
sea-level rise, desertification, glacial retreat, land
degradation, ocean acidification, and salinization.
- The Loss and Damage Fund aims to help
countries recover from both types of impacts, with a particular focus on
supporting the most vulnerable regions.
Other Important Global Climate
Funds
- Green Climate Fund (GCF): Established to
reduce Greenhouse Gas (GHG) emissions in developing countries and
assist vulnerable societies in adapting to climate change impacts.
- Adaptation Fund (AF): Created under the Kyoto
Protocol in 2001, the Adaptation Fund has committed USD 532 million
to activities focused on enhancing climate resilience and
adaptation efforts in developing countries.
- Global Environment Facility (GEF): Operating
since the 1994 UNFCCC Convention, GEF focuses on long-term financial
returns through investments in clean energy and efforts to
tackle climate change.
Under-reporting of Income by Wealthy Indians - ECONOMY
NEWS: A recent study (Delhi
School of Economics), reveals that India's wealthiest individuals significantly
underreport their income relative to their wealth. This underreporting leads to
a regressive tax structure and underestimation of income
inequality.
WHAT’S IN THE NEWS?
Key Findings of the Study
- Inverse Relationship between Wealth and Reported
Income:
- The
study found that as family wealth increases by 1%, the reported
income-to-wealth ratio decreases by more than 0.6%. This
suggests that wealthier families tend to report a lower proportion of
their wealth as income, indicating potential underreporting or
misclassification of wealth.
- Disparity in Income Reporting:
- The bottom
10% of families report incomes that are 188% of their wealth,
indicating that these families may be over-reporting their income
relative to their wealth.
- The top
5% report incomes that are only 4% of their wealth, pointing
to significant underreporting.
- The top
0.1% report incomes that are less than 2% of their wealth,
reflecting an even greater discrepancy in reported income.
- Forbes-listed
families report incomes that are less than 0.6% of their
wealth, demonstrating extreme underreporting among the wealthiest
individuals.
- Underreporting of Capital Income:
- The
study found that over 90% of capital returns for the wealthiest
families do not appear in their reported incomes, suggesting widespread tax
avoidance practices and significant underreporting of wealth
generated through investments or capital gains.
- Tax Liability Discrepancies:
- The wealthiest
0.1% have tax liabilities amounting to approximately 0.7% of
their wealth, much lower than what would be expected given their
financial resources.
- Super-wealthy
individuals pay taxes that amount to less than 0.2% of their
wealth, which is notably lower than the tax liabilities of middle-wealth
groups, contributing to an unfair distribution of tax burdens.
- Underreporting of Rental and Agricultural Income:
- Rental
incomes are often underreported, with some individuals deliberately
misclassifying taxable income as tax-free agricultural income in
order to evade taxes.
- Influence of Public Scrutiny:
- The
study observed that individuals who are subject to higher levels of media
and public scrutiny are more likely to report higher incomes.
This suggests that visibility and the potential for public accountability
have a significant impact on income disclosure practices.
Implications of the Study
- Policy Reforms Needed:
- The
findings emphasize the need for comprehensive policy reforms to
tackle income underreporting, particularly among the wealthiest
individuals. Ensuring that tax obligations are met equitably could help
reduce income inequality and provide more resources for public services.
- Enhancing Transparency and Accountability:
- The
study calls for greater transparency and accountability,
especially among ultra-wealthy individuals, to ensure a more equitable
tax system. By closing loopholes and enforcing stricter reporting
requirements, governments can better address income inequality and
improve tax revenues.
Tax Evasion
- Definition of Tax Evasion:
- Tax
evasion is the illegal act of deliberately and knowingly
underreporting, concealing, or misrepresenting information on a tax
return to reduce the amount of tax owed to the government. Common methods
include hiding income, inflating deductions, or utilizing offshore
accounts to conceal earnings.
- Distinction Between Tax Evasion and Tax
Avoidance:
- Tax
evasion is illegal, while tax avoidance is a legal method of
minimizing tax liabilities. Tax avoidance involves using legitimate means
such as deductions and tax credits to reduce tax
obligations within the bounds of the law.
Steps Taken by India to Curb Tax
Evasion
- Income-tax Act, 1961 (Search and Seizure):
- The Income-tax
Act allows tax authorities to carry out search and seizure
operations to investigate suspected tax evasion. This legal framework
helps identify hidden assets and undeclared income.
- Double Tax Avoidance Agreement (DTAA):
- India
has entered into DTAA treaties with various countries to prevent
double taxation of income, ensuring that income earned in one country is
not taxed again in another. This helps curb tax evasion through
offshore tax havens.
- Tax Information Exchange Agreement (TIEA):
- India
has signed TIEAs with several jurisdictions to enhance information
sharing and facilitate the exchange of data on tax-related matters,
aiding in the detection of evasion activities.
- Benami Transactions Informants Reward Scheme:
- The
government introduced the Benami Transactions Informants Reward Scheme
to incentivize people to report illegal benami transactions
(property held in the name of another person to conceal the true
ownership) to the authorities, thus encouraging citizens to assist in the
detection of tax evasion.
Source: https://economictimes.indiatimes.com/news/economy/finance/how-indias-super-rich-are-hiding-their-income-pay-less-tax-than-you-think/articleshow/120276434.cms?from=mdr